Are you prepared for the new BEPS and CbC Reporting Landscape?

The Organisation for Economic Co-operation and Development (OECD) released its final report on Action 13, Transfer Pricing Documentation and Country-by-Country Reporting’ on 5 October 2015. This final report included: (1) Template for Country-by-Country (CbC Reporting) and (2) Revised standards for transfer pricing documentation.

The CbC Reporting has created a ‘BEPS wave’ in the industry and has become an area of focus for tax practitioners, with many countries releasing new legislation and reporting requirements for multinational enterprises (MNE).

A recent survey published by TP Week and conducted by The International Tax Review indicated that 78% of tax professionals interviewed consider transfer pricing documentation and CbC Reporting as the priority within the BEPS action plan[1].

With this in mind, below is our guide to what you need to know about CbC Reporting.

What is CbC Reporting?

The CbC Reporting is a new compliance requirement that compels MNEs to disclose new information to tax authorities about the Group and the local entities.

The CbC Reporting is divided into three tables as follows

Table I. Overview of allocation of income, taxes and business activities by tax jurisdiction

Table II. Requires MNEs to provide annually a list, by legal entity name, of all the Constituent Entities that are resident for tax purposes in each tax jurisdiction. For each Constituent Entity, identification of the main business activity also is required.

The CbC Reporting means tax authorities will have access to information that they have not seen before. This may result in tax authorities focusing on broader aspects and structures as opposed to concentrating on the local entity only. More information may also increase tax scrutiny and additional questions about the MNE Group in tax reviews and audits.

Key Facts about County-by-Country Reporting

Eleven countries have already introduced CbC reporting legislation that will apply from 1 January 2016. Countries with legislation already in effect are Australia, Spain, UK, France, Ireland, Italy, Japan, Mexico, the Netherlands, Poland and South Africa.

For the 2016 income year, every MNE that is located in a country with CbC Reporting already implemented, and last income year exceeding the local annual consolidated group revenue threshold, will have to prepare CbC Reporting. If the ultimate parent company does not file a CbC Report, the local entity will most likely be required to comply.

The local thresholds are as follows:

European countries: MNEs with revenue greater than EURO 750 million

Australia: Global group revenue greater than AUD 1 billion

Japan: Consolidated group revenue greater than JPY 100 billion

In January 2016, a Multilateral Competent Authority Agreement (MCAA) on the Exchange of CbC Reporting was prepared by the OECD and opened for signature by interested parties (tax authorities via their governing Ministry). To date, it has been signed by 32 countries.[2] As a result, the Competent Authorities of signature countries will automatically exchange information about the CbC Reporting.

For more information about the CbC Reporting and how can affect your company, please contact our offices in Australia or Singapore. Transfer Pricing Solutions on reception@transferpricingsolutions.com.au www.transferpricingsolutions.com.au or Transfer Pricing Solutions Asia on services@transferpricingsolutions.asia www.transferpricingsolutions.asia